Winifred Paul Ames v. United States of America, Alfred Paul, Jr., and Virginia Paul v. United States

These are actions by taxpayers for the refund of federal income taxes alleged to have been erroneously paid for the taxable years 1954, 1955 and 1956. Judgments were entered awarding plaintiffs part of the refunds sought. They appeal.

During the years in question the taxpayers owned and operated the Paul Lime Plant, a partnership, at Paul Spur, Arizona. Their business was the quarrying and processing of ealcinable limestone and silica. The principal product of the quarry was crushed limestone between %" and iy2" in size. The partnership did not sell this limestone but used it in its adjacent plant to make calcined lime, which it then sold.

Under sections 611 and 613 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 611 and 613 (1958), the taxpayers were entitled to a percentage depletion allowance of fifteen per cent of their gross income from mining this limestone.

The method of computing gross income from the mining of crude mineral product is specified in Treasury Regulation 118 (1939 Code), § 39.23(m)-l. Paragraph (e) (3) thereunder provides, among other things, that if the product is processed (as this limestone was processed into calcined lime) before it is sold by the…